Low-deposit mortgage options fall

The collapse or takeover of lenders has meant fewer mortgage deals

The number of mortgages available to buyers with a 5% deposit is shrinking fast, as lending is cut because of the credit crunch and falling house prices.

There are only 60 such deals currently available from lenders, according to the information service Moneyfacts.

That number is down from 384 at the start of April, and 860 a year ago.

Mortgages for 100% or more of a property's value disappeared at the start of the year and the range of all mortgage deals has since shrunk.

"Every week or so another lender drops out of lending at 95%," said Aaron Strutt of Chase de Vere mortgage brokers.

Disappearing deals

Those deals that require only a 5% deposit from a borrower are still being offered by some of the UK's biggest lenders, such as the Nationwide, Abbey and the Halifax.

Lenders... want to concentrate on lending to people with a lower risk profile David Hollingsworth, London & Country mortgage brokers

But Ray Boulger of mortgage broker John Charcol warned the offers might disappear altogether.

"For borrowers there is a danger of a much smaller choice of lenders if the situation in the banking market does not improve in the very near future," he said.

With the international credit crunch becoming worse by the day, and the authorities struggling to find a coherent answer, mortgage lending in the UK has slumped.

House sales are already down by more than half and mortgage approvals, a good indicator of future trends in transactions, are at a record low, down by 70% on a year ago.

During August new mortgage lending was just 5% of the level seen the month before.

"There is so much risk to lenders that they want to concentrate on lending to people with a lower risk profile," said David Hollingsworth of mortgage brokers London & Country.

That sometimes means people who can put down a deposit, or who have equity in their homes, of 40% or more.

Higher charges

Those borrowers who still want or need a 95% home loan are finding they are asked to pay interest rates of 7% or more, which is noticeably higher than the cost of more mainstream mortgages which are currently priced at 6% or less.

Borrowers with small deposits, of less than 10%, are also being asked to pay high up-front "higher lending charges".

These go towards paying for insurance for lenders in case the borrower defaults and the property has to be sold for less than the value of their loan.

These charges can easily amount to £2,000.

Even those 95% deals on the market are not available to everyone.

The current offer from HSBC is restricted to graduate customers who have had a student account with the bank.

HBOS, currently in the throes of a rescue takeover by Lloyds TSB, requires new customers to open a current account funded by their salary to be considered for a 95% home loan.

And its first-time buyers must also be willing to be tied into their loans for five years if they want a loan of more than 90%.

The number of 90% deals is also shrinking fast, though not as dramatically.

A year ago there were 837 of these mortgages, but that number shrank to 653 six months ago, and now stands at 399.